From cash to crypto: towards a consistent regulatory approach to illicit payments

The rapid evolution of cryptoassets, including stablecoins, and retail central bank digital currency (CBDC) has led to changes in regulatory frameworks to incorporate them. The expansion of options beyond bank deposits and cash calls for a holistic analysis of the effectiveness of anti-money laundering (AML) and combating the financing of terrorism (CFT) regimes across different payment instruments. To contribute to such analysis, this paper introduces a conceptual framework to assess the effects of AML/CFT frameworks, with a particular focus on differences in design between instruments, including the role of intermediaries. Our framework considers regulatory arbitrage between instruments. It also highlights behavioural responses to AML/CFT-related requirements that limit privacy and freedom in choosing a payment instrument. The framework is supported by a case study examining regulatory changes within the European Union (EU) that aim to increase the effectiveness of the EU AML/CFT regulatory framework across various payment instruments. Key challenges highlighted in the study include balancing privacy with integrity and ensuring consistent AML/CFT measures across payment instruments. We advocate for a consistent regulatory approach that is adaptable to future digital innovations and based on a combination of overarching principles ("lex generalis") and tailored instrument-specific measures ("lex specialis").